South Carolina Life Insurance Practice Exam

In a buy-sell agreement, what type of insurance policy may be used to fund the agreement?

1. Universal life insurance

2. Term life insurance

3. Whole life insurance

4. Any type of life insurance

The correct answer is: Any type of life insurance

In a buy-sell agreement, any type of life insurance policy can be utilized to fund the agreement. This flexibility allows business partners to choose the insurance product that best fits their specific financial situations and business needs. Universal life insurance offers flexibility in premium payments and death benefits, making it a viable option. Term life insurance provides coverage for a set period, which can be suitable for a specific timeframe of a buy-sell agreement. Whole life insurance supports permanent coverage, potentially building cash value over time, which can also be advantageous for funding purposes. The primary goal of a buy-sell agreement is to ensure that funds are available to facilitate the buyout of a partner's interest in the business upon certain triggering events, like death or disability. Different types of life insurance can serve this purpose effectively, allowing business owners to select the best strategy according to their circumstances.